Gold Blasts Through $1500: Message? Central Banks Out of Control, Not Inflation

-edited

Gold blasted through the $1500 level today. Let's analyze the message. Here's a hint: The message isn't inflation.

The above chart is and end-of-day chart from yesterday. Gold closed at $1484.

At 11:30 AM Central, gold was at $1520, up $36 on the day.

Gold vs Copper

What's the Message?

Stephanie Pomboy at Macro Mavens nails it.

Gold Not an Inflation Hedge

As I have pointed out numerous times, and contrary to popular belief, gold is not an inflation hedge. Gold fell from $800 to $250 with inflation every step of the way.

Rather, gold is a measure of faith in central banks that everything is under control.

Gold vs Faith in Central Banks

Everything Under Control?

Clearly not, and I have easy-to-understand proof.

  1. Hello Treasury Bears: 10-Year Bond Yield Approaching Record Low Yield
  2. Negative Yield Debt Hits Record $15 Trillion, Up $1 Trillion in 2 Business Days
  3. US Treasury Declares China a Currency Manipulator Under Orders From Trump

If you believe gold tracks inflation or is some kind of inflation hedge, you need to think again.

Only in hyperinflation or its mild form, stagflation, is gold an inflation hedge. But even then, both are synonymous with central bank stress.

Hello Treasury Bears

Let me make it simple: It's the debt, stupid!

The global economy is choking on debt as central banks are determined to have more of it.

Inflation? Forget about it. The bubbles are proof we "had" inflation.

The Bond markets says something else is coming up.

Mike "Mish" Shedlock

Comments (34)
No. 1-19
HubbaBuba2
HubbaBuba2

The "Minsky Moment". As Friedman put it "debt feels good until it doesn't". To me, the situation can be described as 'you can't solve a debt problem [GFC] with another debt problem'. During the Great Depression among other things, the Fed lowered margin requirements back to 50% from a bubble-inducing prior 90%. The point is the country rebuilt their balance sheets. Now, the world has done anything but - and another debt problem will not solve a debt problem - it's just compounding it and the inevitable.

AWC
AWC

Wouldn’t using gold as a hedge against the Fed be a bit like fighting the Fed?

And, what of the gold price when massive “shock and awe” QE4 is announced?

Ah, the dilemmas surrounding the Fallacy of Potent Directors.

Mish
Mish

Editor

"Wouldn’t using gold as a hedge against the Fed be a bit like fighting the Fed?"

If so it's been a generally successful fight if you pick your times right

ColoradoAccountant
ColoradoAccountant

I don't remember any economics books covering the topic of negative interest rates. Negative interest rates means that the currency is worth less than face value, which it has been since Nixon was President. That is why gold and silver are rising, fear among the savers, who figured out where the bankers are going.

2banana
2banana

So what is a reasonable estimate on how high gold will increase in value?